Project Cost Control Objectives of Project Cost Control

Project Cost Control

<Objectives of Project Cost Control System 1. To identify those work types having excessive costs and to give an indication of how serious those overruns are. 2. To forecast the final total job cost. 3. To indicate the trend for each cost code, that is, whether the unit cost involved has been increasing or decreasing (evaluation of the effectiveness of cost reduction efforts). 4. To update the database of the company that will be used to estimate future works.

<Project Time Control < Project Cost Control System q The cost estimate prepared for the project during the estimate bidding process is the basis for cost control. q Cost control for an engineering project is limited to the cost of labor, equipment, materials and site overheads q Control of cost and time should be linked together.

<Three Key Indicators in Performance Measurement 1. Budgeted Cost of Work Scheduled (BCWS) is the budgeted amount of cost of the work scheduled to be accomplished in a given time period (including support and allocated overhead). (This is can be referred to as “planned value of work to be accomplished [PV]”. ) 2. Budgeted Cost of Work Performed (BCWP) is the budgeted amount of cost for the work completed in a given time period, including support effort and allocated overhead. (This is can be referred to as “earned value of work accomplished [EV]”. ) accomplished [EV] How to calculate BCWP q Budgeted cost for work performed (BCWP) = Earned value of an activity = Percent completed for the activity * the activity budget q Percent completed for an activity = [(Projected duration – Remaining duration) / Projected duration] * 100 3. Actual Cost of Work Performed (ACWP) OR [AC] is the amount OR reported as actually expended in completing the particular work accomplished within a given time period.

Performance Equations Symbol Definition ﺍﻟﺘﻌﺮﻳﻒ (BCWS) [PV]” Budgeted Cost of Work Scheduled planned value of work to be accomplished Budgeted Cost of Work Scheduled “planned value of work to be accomplished ﺗﻜﻠﻔﺔ ﻣﻮﺍﺯﻧﺔ ﻟﻸﻌﻤﺎﻝ ﺍﻟﻤﺠﺪﻭﻟﺔ ﻭﻓﻘﺎ ﻟﻠﺨﻄﺔ (BCWP) [EV] Budgeted Cost of Work Performed earned value of work accomplished Budgeted Cost of Work Performed “earned value of work accomplished ﺗﻜﻠﻔﺔ ﻣﻮﺍﺯﻧﺔ ﻟﻤﺎ ﺗﻢ ﻣﻦ ﺃﻌﻤﺎﻝ (ACWP) [AC] Actual Cost of Work Performed ﺍﻟﺘﻜﻠﻔﺔ ﺍﻟﻔﻌﻠﻴﺔ ﻟﻤﺎ ﺗﻢ ﻣﻦ ﺃﻌﻤﺎﻝ ﻭﺗﻢ ﺩﻓﻌﻬﺎ Cost Performance BCWP ACWP Cost Variance CV = BCWP-ACWP Cost Performance BCWP ACWP Cost Performance Index CPI = BCWP/ACWP Cost Performance BCWP % Cost Overrun/ Underrun ACWP The “Cost Overrun” curve is a plot of the calculated percent over- or Underrun at any given time. >0 Under budget Work performed cost > Actual cost =0 Within budget Work performed cost = Actual cost <0 Over budget Work performed cost < Actual cost >1 Under budget Work performed cost > Actual cost =1 Within budget Work performed cost = Actual cost <1 Over budget Work performed cost < Actual cost >0 Under run Performed cost > Earned =0 on run Performed cost = Earned <0 Over run Performed cost < Earned

Performance Equations Symbol Definition ﺍﻟﺘﻌﺮﻳﻒ (BCWS) [PV]” Budgeted Cost of Work Scheduled planned value of work to be accomplished Budgeted Cost of Work Scheduled “planned value of work to be accomplished ﺗﻜﻠﻔﺔ ﻣﻮﺍﺯﻧﺔ ﻟﻸﻌﻤﺎﻝ ﺍﻟﻤﺠﺪﻭﻟﺔ ﻭﻓﻘﺎ ﻟﻠﺨﻄﺔ (BCWP) [EV] Budgeted Cost of Work Performed earned value of work accomplished Budgeted Cost of Work Performed “earned value of work accomplished ﺗﻜﻠﻔﺔ ﻣﻮﺍﺯﻧﺔ ﻟﻤﺎ ﺗﻢ ﻣﻦ ﺃﻌﻤﺎﻝ (ACWP) [AC] Actual Cost of Work Performed ﺍﻟﺘﻜﻠﻔﺔ ﺍﻟﻔﻌﻠﻴﺔ ﻟﻤﺎ ﺗﻢ ﻣﻦ ﺃﻌﻤﺎﻝ ﻭﺗﻢ ﺩﻓﻌﻬﺎ Schedule (Time) Performance BCWP BCWS Schedule/Performance Variance SV = BCWP-BCWS Schedule (Time) Performance BCWP BCWS Schedule Performance Index SPI = BCWP/BCWS >0 Ahead schedule Work performed > Work scheduled =0 On schedule Work performed = Work scheduled <0 Behind scheduke Work performed < Work scheduled >1 Ahead schedule Work performed > Work scheduled =0 On schedule Work performed = Work scheduled <1 Behind scheduke Work performed < Work scheduled

Cost Forecasting Equations Symbol Definition ﺍﻟﺘﻌﺮﻳﻒ (BCWS) [PV]” Budgeted Cost of Work Scheduled planned value of work to be accomplished Budgeted Cost of Work Scheduled “planned value of work to be accomplished ﺗﻜﻠﻔﺔ ﻣﻮﺍﺯﻧﺔ ﻟﻸﻌﻤﺎﻝ ﺍﻟﻤﺠﺪﻭﻟﺔ ﻭﻓﻘﺎ ﻟﻠﺨﻄﺔ (BCWP) [EV] Budgeted Cost of Work Performed earned value of work accomplished Budgeted Cost of Work Performed “earned value of work accomplished ﺗﻜﻠﻔﺔ ﻣﻮﺍﺯﻧﺔ ﻟﻤﺎ ﺗﻢ ﻣﻦ ﺃﻌﻤﺎﻝ (ACWP) [AC] Actual Cost of Work Performed ﺍﻟﺘﻜﻠﻔﺔ ﺍﻟﻔﻌﻠﻴﺔ ﻟﻤﺎ ﺗﻢ ﻣﻦ ﺃﻌﻤﺎﻝ ﻭﺗﻢ ﺩﻓﻌﻬﺎ Budget Cost At Completion BAC = BCWSend Estimated Cost At Completion Estimate to Completion ETC = EAC - ACWP Variance from original budget VB = EAC - BAC

BCWS [PV], BCWP [EV], and ACWP[AC] – S-CURVES ACWP [AC] BCWS [PV] BCWP [EV]

BCWS, BCWP, and ACWP Under budget (costs below budget) & Ahead of schedule (fast) Over budget (Over costs) & Ahead of schedule (fast) Under budget (costs below budget) & Behind schedule (Slow) Over budget (Over cost) & Behind schedule (Slow)

BCWS, BCWP, and ACWP Performance report from integrated time/cost control system

<Example The following time-scale diagram represents a small engineering project. The budgeted cost of each activity is shown in the table below. At the end of the 10 th week, the field progress report gives you the following information: § Activity “A” was completed on schedule. § Activity “B” started as planned but it is expected to take four weeks more. § Activity “C” started as planned but finished one week later. § % age of completion of activity “D” is 60%. § ACWP at the end of week 10 = SR 90400 1 2 3 4 5 6 7 8 A (5 weeks) C (5 weeks) Activity Budgeted cost (SR) 9 10 11 Time (week) 12 13 14 B (8 weeks) B 12000 16 17 18 19 20 21 E (7 weeks) D (6 weeks) A 50000 15 22 23 F (3 weeks) G (4 weeks) C 16000 D 24000 E 12000 F 21000 G 20000 Calculate the CV, SV, BAC, ETC, and comment on the progress of the work.

<Example § % age of completion of activity “A” = 100% § Projected duration of activity “B” = 8 + 4 = 12 weeks § % age of completion of activity “B” = 5/12 = 41. 666666% § % age of completion of activity “C” = 100% § BCWS 10 = A + C + 5/8*B + 5/6*D = 50000 + 16000 + 5/8*12000 + 5/6*24000 = SR 93500 [remark: 5/8 & 5/6 represent ratio off completion of activities B&D with respect to scheduled duration] § BCWP 10 = A + C + 0. 4167*12000 + 0. 60*24000 = SR 85400 [remark: 0. 4167 & 0. 6 represent ratio of completion of activities B&D with respect to actual completion duration] § CV = BCWP – ACWP = 85400 – 90400 = SR -5000 (Over Budget) § SV = BCWP – BCWS = 85400 – 93500 = SR -8100 (Behind Schedule) § BAC = 50000 + 12000 + 16000 + 24000 + 12000 + 21000 + 20000 = SR 155000 § EAC = [ACWP/BCWP]*BAC = [90400/85400]*155000 = SR 164075

Project Example 1 Figure (1) shows a planned schedule and cost of the main product design project activities. Figure (2) gives the planned scheduled for the engineering task activities which should be done within 7 month. A control report should be reported at 3 rd month.

Project Example 1 Figure (2) shows that engineering task is done by 9 activities and the status of these activities at the end of 3 rd month is reported as follows: Activity 1 - system design: this activity is completed and it actual cost of work performed (ACWP) = $144 Activity 2 - Subcontract specs: this activity is started and the scheduled completion is 90. 4% while actual completion is 62. 1% due delay with paid actual cost of work performed (ACWP) = $84 Activity 3 - Material tests: this activity is completed and it actual cost of work performed (ACWP) = $22. 5 Activity 4 - Specs review: this activity is started and the scheduled completion is 68. 75% while actual completion is 46. 875% due delay with paid actual cost of work performed (ACWP) = $15. 5 Activity 5 - Drafting: this activity is started and the scheduled completion is 80. 83% while actual completion is 49. 167% due delay with paid actual cost of work performed (ACWP) = $59 Activity 6 - Fabrication/assembly support: this activity is completed and it actual cost of work performed (ACWP) = $36 Activity 7 - Fabrication/assembly process: this activity is started and the scheduled completion is 79. 923% while actual completion is 48. 462% due delay with paid actual cost of work performed (ACWP) = $67 Activity 8 - Test support: this activity is started and the scheduled completion is 21% while actual completion is 21% due delay with paid actual cost of work performed (ACWP) = $21 Activity 9 - Engineering release and review: this activity is not started yet

Project Example 1 ENGINEERING SUBTASKS STATUS AT END OF MONTH 3 (thousands of dollars) Example of calculation: BCWS 2 = 0. 904*146 = 131 BCWP 2 = 0. 562*146 = 82 The status report is as shown in the table: Task System design Subcontract specs Material tests Specs review Drafting Fabrication/assembly support Fabrication/assembly process Test support Engineering release and review Total Status Completed Started Completed Started Not Started BCWS BCWP ACWP $131. 0 $144. 0 132. 0 84. 0 22. 5 22. 0 15. 5 97. 0 59. 0 29. 0 36. 0 100. 0 63. 0 67. 0 21. 0 $554. 0 $422. 0 $449. 0

Project Example 1 Status summary of engineering subtasks in progress and estimate to complete. Task Subcontract specs BCWS BCWP ACWP Status $132 $84 Behind schedule and over cost Specs review 22 15 15. 5 Behind schedule and over cost Drafting 97 59 59 Behind schedule but within cost Fabrication/assembly process 100 63 67 Behind schedule and over cost Test support 21 21 21 On schedule and within cost Estimated at completion: =$812 K Summary: Engineering work is behind schedule and a cost overrun is occurring

Project Example 2 For the following network, compute the early start cumulative costs for the project, and draw the result. Activity Depend on A B C D E F G H A A B, C E D, F Duration Week 2 4 5 6 4 2 3 3 ES Time 0 0 2 2 7 7 11 9 LS Time 0 3 2 5 7 7 11 11 Cost per week, SR 400 200 300 400 350 200 300 200

Cost based on Time Scaled Network (ES)

Cost based on Time Scaled Network (LS)

Cumulative Project Cost

Project Example 3 : You are required to submit a progress report to your boss about the performance of an activity of a project. The activity’s information as follow: number of units is (800); unit cost is SR 12 ; and planned productivity is 100 unit/day. Performances were measure at the end of day (3) and day (6) as follows: Period Cost at this period day 0 to day 3 SR 3, 600 day 4 to day 6 SR 3, 700 Number of units finished 250 320 a) Calculate the following information for each of the two periods (i. e. day 0 to day 3 and day 4 to day 6) and to date (i. e. day 0 to day 3 and day 0 to day 6). b) Draw a graphical report for ACWP, BCWP, and BCWS. Discuss the results. 1. This Period BCWP 0 - 3 4 - 6 2. To Date Period BCWP 0 - 3 0 - 6 Variance STATUS Cost Schedule Cost SR 3000 SR 3600 -600 Behind Over Bud. SR 3840 SR 3700 SR 3600 140 240 Ahead under Bud. ACWP BCWS Variance STATUS Cost Sch. Cost SR 3000 SR 3600 -600 Behind Over Bud. SR 6840 SR 7300 SR 7200 -460 -360 Behind Over Bud. Estimate at Day ahead completion or behind SR 11, 520 0. 5 SR 10, 446 0. 3

Project Example 3 : b) At this rate, the contractor needs actions to reduce the cost and accelerate the time.

Project Example 4 : The following eight activities constitute an overall bar chart project that has twenty-week. Now 10 weeks finished on the project with and the project manager has the following Data: • The weekly planned percentage of completion (inside each activity bar), • The actual percentage of completion up to week 10 (in below activity bar and table), • The Budget cost of each activity (in below table), • Actual Expenses up to week 10 of each activity (in below table), • The Critical Path is A-B-C-D (bolted bar), and Total Float of each activity (dash lines) ACT W 1 A B W 2 W 3 W 4 W 5 W 6 W 7 W 8 W 9 W 10 W 11 W 12 W 13 W 14 W 15 W 16 W 17 W 18 W 19 W 20 5% 10% 15% 19% 23% 28% 60 % 7% 14% 20% 27% 32% 100 % C 4% D E H 11% 14% 18% 21% 25% 0 % 40% 60% 100 % F G 7% 7% 14% 20% 27% 32% 50 % 40% 60% 100 % 10% 20% 30% 40% 70 %

Project Example 4 : For this point in time (10 weeks after the start date): a) Calculate the values of the Budgeted Cost of Work Performed and Budgeted Cost of Work Scheduled for each activity? (8%) b) For each activity in progress, calculate the Cost and Schedule Performed Indices and state its budget and schedule status. (3%) c) Draw the weekly cumulative BCWS of activity B, determine its delay/Ahead week, and whether it will delay/accelerate the project or not and why. (5%) d) Determine the project cost variance and state if the project is over or under budget. (2%) e) Based on the performance of past 10 weeks, forecast the project completion cost at the end of the project, and its variance from original project budget. (2%)

Project Example 4 : Solution Parts a) and b), % of Budget Cost Actual Expenses Completion (SR) A 100% 8000 9000 Act. BCWS (SR) 8000 BCWP (SR) 8000 CPI SPI Cost Status Schedule Status 1. 13 1 B 60% 10000 6000 7200 6000 1 1. 2 C D E F G 0% 0% 100% 50% 100% 11000 3000 4000 7000 5000 0 0 3500 4000 0 0 4000 2870 5000 0 0 4000 3500 5000 0. 88 1. 143 0. 8 H 70% 6000 3900 3600 4200 0. 93 54, 000 30, 400 30, 670 30, 700 Total On Budget Behind 1 0. 82 1 Over Bud. Ahead 0. 86 Under Bud. Ahead

Project Example 4 : Solution Parts c) 110000 9000 8000 SR 7000 6000 5000 4000 3000 2000 ½ Week 1000 0 0 1 2 3 Week 4 5 6 7

Project Example 4 : Solution Parts d) and e), This activity will delay the project because it is critical activity. d) Project cost Variance = BCWPproject ACWPproject = 30, 700 30, 400 = SR 300 (Under Budget) e) Budgeted Cost At Completion (BAC) = Budget Cost = SR 54, 000 Estimated Cost At Completion (EAC) = [ACWP/BCWP]*BAC = SR 53, 472. 3 OR Estimated Cost At Completion (EAC) = ACWP + [(BAC – BCWP) / CPI] = SR 53, 472. 3 Variance from original project budget = EAC BAC = SR -527. 7 (Under Budget)